Quantitative Methods for Business Decisions

Successful business decisions rely on quantitative methods to narrow possibilities and help predict what options will have the greatest chance of success. Whether you are making purchasing, marketing or financing decisions, it is essential to obtain a quantitative foundation to assist in the decision-making process. Using math and numbers to back up your business decisions helps you make more informed choices and can help increase your company's success.

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Use probability to determine the long-term chance of profitability on products you offer and to help allocate resources. For example, in the insurance field business decisions on rates can be set by the probability of claims based on variables such as demographic and geographic differences. You also can use probability to determine which of your products or services have the greatest potential for profits. Make the business decision to allocate financial and employee resources based on profit potential.

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Apply forecasting techniques such as moving average, exponential smoothing and linear regression to predict future business events based on prior data. Most forecasting methods assume that future events will be similar to prior events, given that no major changes occur. Forecasting can be used to help make financing decisions, product decisions and even staffing decisions. Forecasting is one of the most powerful quantitative methods for assisting with business decisions. Use forecasting information as a foundation and modify based on known changes to increase business decision reliability.

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Use data mining techniques such as averaging, stacking or meta-learning to discover patterns or relationships in your business data. Look for customer buying patterns, feature preferences, seasonal variations and any variable that can be used to pinpoint future customer choices. If you sell dresses, you may find that half of your customer purchases are for black dresses and that sales spike at the beginning of December. Armed with this information, you can make the business decision to stock more black dresses and to increase your dress inventory in December to maximize sales.

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Apply time series analysis methods to make financial business decisions. Time value of money is a foundational concept in finance and helps you determine what investments will be worth in the future. These methods can be used for standard financial instruments like bonds, but also can be applied to capital investments like building decisions. Make business decisions by comparing the future value of a capital investment to alternative investments. For example, you can compare the future value of a new production plant versus investing in a high-yield bond to see if the plant investment would beat a standard market return.